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Reward Systems

Reward Systems

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Published by Kanika Arora

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Published by: Kanika Arora on Oct 03, 2012
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Reward Systems

Intrinsic Rewards Status Growth

Extrinsic Rewards Non-financial (office, staff, title, etc.) Financial (direct and indirect compensation)

Financial Rewards: Indirect Compensation
Protection Programs
Examples: pensions, health coverage, life insurance, social welfare programs

Public Private
Mandatory versus Voluntary Contributory versus Non-contributory

Financial Rewards: Indirect Compensation
Pay for Time Not Worked (at work and off work)
Examples: breaks, meal time, transit time, medical leave, military leave, education leave, vacation

Services and Perquisites
(Examples: financial services, counseling, dining discounts) Limited (Examples: automobile, cellular phone, clothing allowance, gym membership)

Financial Rewards: Direct Compensation
Base Pay

Cost-of-Living Adjustments (COLAs) Merit Pay

Compensation System Objectives External Competitiveness Internal Equity Legal Compliance Motivational Soundness Linkages to Performance Cost Effectiveness Culture Creating .

2. Recognition for performance or productivity. 3. Degree of income protection and replacement to be provided for employees. –Er’s responsibility for costs of –ee benefits. Recognition for seniority. . and retiree benefits.Total Comp Policy Planning: Key Issues 1. for dependents and for retirees. 6. Provisions (if any) to be made for income supplementation benefits. dependent benefits. Relation of benefits to job level. 5. 4.

10. Basis and use of external comparisons.7. . Effect of union settlements on benefits for nonrepresented employees. Coverage for part-time employees. 11. 8. 12. 9. Responsibility for planning and managing the plans/programs. Application of plans to –ees of acquired orgs. Employee choice and plan flexibility.

) Bonuses Contracts Work Agreements Child Labor Benefits .Compensation Laws & Regs Wages Wage Controls Payment Schedules Pay Increases Overtime Incentive Pay Wage Adjustments (longevity. education. etc.


Basic Compensation Markets Blue Collar – “Labor” Professional Supervisory and Managerial Entertainers and Athletes .

External Influences on Compensation Supply of Labor Demand for Labor Org Location Economic State Competition Union Influence Product/Service Demand .

Internal Influences on Compensation Organization Size Willingness to Pay Ability to Pay Tradition Unionization Job Itself Employer Prestige Work Force Character Desired Employee Quality Ratio of Labor Costs to Total Costs .

Organizational Compensation System Requirements Maximize ability to attract and retain qualified employees Be within ability to pay Allow organization to remain competitive .

Compensation Terminology Wage versus Salary Exempt versus Nonexempt .

Flat Rates 2.Assigning Pay to Jobs Job Pricing = placing a monetary value on the worth of a job to the organization RULE: Each job is worth only so much to the organization OPTIONS: 1. Pay Ranges .

Pay Considerations Prevailing wages and salaries Collective bargaining Economic realities Worth of position/job Worth of employee Difficulty in filling job Priority of work in organization .

Basic Compensation Decisions Wage level decisions compared to other organizations Wage structure decisions comparing job to job Individual wage decisions comparing individuals in same jobs .


Wage Level Decisions Lead Competition Match Competition Lag Competition .

Wage Structure Decisions System for assigning value to jobs within an organization Ranking Classification Point/Factor .

Wage Structures Rankings Each job in relation to other from most important to least important Classification Jobs sorted by requirements. responsibilities Point/Factor Jobs evaluated and sorted by objective factors .

Ranking System Job A .President Job B – Vice President Job C1 – Treasurer/CFO Job C2 – Manager of Operations/COO Job D – Sales Manager Job E – Salesperson Job F – Order Entry Clerk Job G – Cleaning Crew Member .

731 28.567 19.724 22.039 19.484 27.011 32.363 23.975 19.833 24.183 18.878 25.430 26.521 31.110 26.625 16.985 18.146 16.982 29.057 23.104 34.Classification System Grade 1 2 3 4 5 6 Step Step Step Step Step Step Step 1 2 3 4 5 6 7 15.235 23.206 33.876 27.168 19.090 28.807 20.681 26.543 17.002 22.666 17.408 20.626 29.060 19.085 21.891 .009 19.386 25.841 20.568 17.669 24.287 28.446 21.

Point/Factor Systems Job A = 100 Job B = 110 points Job C = 160 points Job D = 180 points Job E = 200 points Job F = 220 points Job P = 430 points .

Pay Adjustments Fixed Rate Increases step increases. flat dollar increases Percentage Increases across the board. competitive percent Incentives .

Levels of Incentives Individual Group Company-wide Executive .

Individual Incentive Plans Piecework Payment (Straight and Differential) Standard Hour Commissions Bonuses Skills-based Pay Non-financial Awards .

Group Incentive Plans Piece-rate Systems Standard Hour Plans Group Bonuses Profit Sharing .

Company-wide Incentives Profit Sharing (Cash Plan or Deferred Plan) Gainsharing Stock Ownership Plans (ESOP) .

Executive Incentives Salaries Stock Options Long-term Incentive Plan Payouts Directors’ Fees Perquisites .


000 6.900.500.Executive Compensation Organization Boeing Tenet Healthcare Dell Computer Disney Household Intl GE Salary & Bonus 2.400.000.000 +63% 82.000 37.000 -60% 41.000 -13.300.000 -50% 43.2% -39% .000 Long-term Company Comp Performance 1.684.245.000 -128% 116.000 14.300.000 72.000 5.000.

Directors’ Fees Board Member Compensation Fees Insurance Travel Stocks Retirement contributions .

000 $ 67.000 $ 78.Board Fees Bear Sterns Investments PM Industries Pepsico American Express Coca-cola Georgia Pacific Microsoft $150.500 $ 61.000 .000 $ 42.000 $ 53.000 $ 85.

Perquisites Memberships Company car/limo Corporate Travel Corporate Jet/Yacht Clothing Allowance Free Parking Dining Privileges No/low Cost Loans Memberships: Gym. Golf & Social Clubs Entertainment Expenses Season Tickets to Sporting Events Financial and Legal Counseling Education/seminar Funding Funding for Family Education .

Perquisites (Perks) continued Kidnapping & Ransom Insurance & Services Housing Allowance or Accommodations Living Accommodations Away from Home Company Credit Cards Special Relocation Allowances Spouse/family Travel Golden Parachute/Severance Package .

4 mil Purchase office furniture & equipment for $1.2mil personal loan Forgiveness of $3mil home loan Cash of $3.Golden Parachute In effect if acquisition or forced to leave Typical severance package: 2-3 x annual salary and bonus accelerated vesting of options Example: Mattel Corporation Package=5 years salary and bonuses = $26. plus options .31mil to cover taxes on loans Received $47mil.00 Forgiveness of $4.

2005 .Executive Pay Decisions Daily Dilbert. 29 October.

HRM Crises of Finances: HRM Implications Bankruptcies Acquisitions and Mergers Scandals with officers/managers Private & Corporate Lawsuits Government investigations and charges Arrests and convictions Tragedies workplace accidents & illnesses travel accidents work-related accidents EXAMPLE: Air France – Concorde/SST crash Union Carbide – Bophol. chemical spill Merrill Lynch – 9/11 Twin Towers crashes . India.

Evaluation of Incentives Attention getter? Understandable? Establishes culture through values? Improves communication? Pays when it should? (achievements versus failures) Improves individual performance? Improves organizational performance? .

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